Has President Biden’s Agenda Worsened the Inflation Crisis?

Discussion on the role of President Biden's policies in worsening the inflation crisis has become highly politicized, with many claiming a definitive 'yes' or 'no.' This article aims to provide a balanced analysis based on economic principles and historical context.

Economic Factors and Inflation

In one way, the answer is undoubtedly 'yes.' Biden's administration has ramped up fiscal spending and maintained loose monetary policy, which can exacerbate inflation when demand exceeds supply. When more money chases the same products and services, the inevitable result is rising prices. However, inflation is a multifaceted issue, with another crucial factor being the velocity of money.

The velocity of money, which refers to how quickly money changes hands in the economy, plays a significant role. If money changes hands more frequently, it can contribute to higher inflation. Therefore, while Biden's policies have contributed to this environment, it is not the sole cause.

Global Economic Factors and Inflation

The rising global liquidity, or the quantity of dollars, has increased significantly since the financial crisis. Over the past decade, we have experienced both rising fiscal spending and loose monetary policies, often accompanied by negative interest rates and quantitative easing programs. Initially, these measures may have been necessary, but they are no longer appropriate under the current economic landscape.

Using a metaphor of pebbles in a stream, the build-up of these economic policies over the years can be seen as adding stones that eventually stop the stream. Biden's policies can be said to be among the pebbles that contributed to the final spark of inflation. However, the imbalances built up over the previous decade had to break at some point, regardless of who was at the helm.

While Biden's policies have certainly played a role, it is difficult to imagine a scenario where Trump would have avoided similar economic responses. The global economic environment and other structural factors mean that a crisis like the inflation we are experiencing would likely have occurred under different leadership.

Alternative Theories of Inflation

Other theories attributing inflation to different factors are also at play. For instance:

JB Policies: Some argue that Biden's economic policies have directly caused the inflation crisis. However, this theory is often pushed by partisan supporters and lacks strong empirical evidence to support it. Profiteering: Another theory is that businesses are profiteering, raising their prices as a way to maximize profits. While this can contribute to inflation, it is a less direct cause compared to broader macroeconomic factors. The Pandemic: The most compelling theory is the impact of the pandemic. A minor recession was followed by a spike in consumer confidence due to vaccine rollouts. This increase in consumer spending fueled economic growth and, ultimately, inflation.

The role of the global oil supply, specifically the actions taken by Saudi Arabia and OPEC in 2017 and 2022, cannot be dismissed. Trump's insistence on oil price increases to make US shale profitable contributed to worldwide inflation. The global demand for energy, particularly oil, can lead to inflationary pressures in various regions, as seen in many other countries.

Conclusion

The inflation crisis is a complex issue influenced by various factors. While President Biden's administration has contributed to the current situation, it is a reflection of broader economic trends and global factors. Understanding the multifaceted nature of inflation is crucial for formulating effective policies moving forward.